Fundamentally, Shah & Anor v Shah & Anor is a case that concerned a family dispute over an apartment in India. The Claimants sued the Defendants and pleaded damages for the amount of £30,000. The Claimants, however, brought a Part 36 offer to the Defendants to settle the dispute for £1 and to pay their costs of above £200,000. To which the Defendants rejected. If this offer was accepted, both parties would have avoided litigation. Though the incurred costs were already high, future costs could have been avoided for both parties and savings could have been made.
What is a Part 36 offer?
This is a Civil Procedural Rule which allows either party the opportunity to settle. The Court is always regarded as the venue of last resort, and a refusal to settle usually results in costs consequences unless the costs are considered to be unjust under Part 36.17. Either party is entitled to the costs and the interests on these costs. It is highlighted that the Court will only depart from the costs consequence if it is unjust and not because it seems harsher and more consequential on a party.
The trial judge, Judge Saggerson held that the Claimants had succeeded and found the Defendants to be in breach of their obligations. Unfortunately for the Claimants, it was decided that they had not effectively quantified the extent of their recoverable loss and would only be awarded £10 in nominal damages.
In the costs hearing, the Defendants argued that the Claimants Part 36 offer of £1 and payment of costs was “not a genuine offer to settle the value of the claim; it is simply an attempt to game the system in terms of obtaining a costs order”. The judge decided against the Defendants and ordered them to pay the Claimants' costs under CPR 44, which by default, requires the unsuccessful party to pay the costs of the successful party.
The Defendants appealed the decision on the basis that “because it's not a genuine offer to settle the value of the claim; it is simply an attempt to game the system in terms of obtaining a costs order…”. The Court, however, upheld the decision made by the trial judge and maintained that despite the Claimant being awarded nominal damages, they are still the successful party. The judge acknowledged that “whether the [Defendants] over-estimated their prospects of success, or whether, they valued the chance of inflicting litigation defeat on the [Claimants] so highly they were prepared to take that chance whatever the cost, their choice to litigate was one which Part 36 is designed to discourage…”.
Though this decision was highly consequential to the Defendants, it was not unjust. With the judge echoing “I cannot depart from the default position under CPR 36.17 simply because the rules themselves may appear harsh or produce a harsh result.” The judgment highlighted that the objective of Part 36 is to prepare all parties to "give" as well as to "take" if they are willing to take the risk of being entrenched in their positions.
Commentary:
It is very hard for the Court to set aside Part 36 consequences. This is also emphasized in Ayton v RSM Bentley Jennison & Ors 2018] EWHC 2851 (QB) where the judge clarified that the test for injustice is a high hurdle. Therefore, each party must consider the risk and reward of a Part 36 offer, and realize that if they choose “to proceed they did so at their own risk.”
Author, Anthony Okumah is a Director and Head of the Duncan Lewis Civil Litigation and Dispute Resolution department. He specialises in dispute resolution (litigation, arbitration or mediation), professional negligence claims predominantly against solicitors, debt recovery; insolvency; contractual disputes, leasehold disputes and contentious probate cases. Anthony also has an in-depth experience of boundary and neighbourhood dispute cases and additionally he regularly conducts his own advocacy in both the County Court and the High Court which allows him to represent his clients throughout their retainer.
Contributed to by Bolutifemito Dosumu, who is a Legal Casework Assistant in the Civil Litigation and Dispute Resolution department.
For more information contact Civil Litigation and Dispute Resolution director Anthony Okumah at anthonyo@duncanlewis.com or call 020 3114 1227.